Technical Analysis

MCX-Zinc in sideways mode

Akhil Nallamuthu BL Research Bureau | Updated on May 28, 2020

The June futures contract of zinc on the MCX has been moving in a sideways trend since the beginning of the month. It has been moving in the band between ₹153 and ₹160 and unless it breaches either of these levels, the next leg of trend will remain uncertain.

Nevertheless, the price action on the daily chart is showing upward bias, as it has been forming higher lows, with the price staying above the 21-day moving average (DMA). The 21-DMA currently rules above the 50-DMA — a bullish indication. Corroborating the upward bias, the daily relative strength index (RSI) is above the midpoint level of 50. Also, the moving average convergence divergence (MACD) indicator on the daily chart stays in the positive region.

On the back of the prevailing bullish bias, if the contract breaks out of ₹160, it can establish a medium-term uptrend. Above ₹160, the contract is likely to advance to ₹170, above which it can rally to ₹175. But if the contract weakens, it can find support at ₹153. Immediately below that level is the support at ₹150. A break below that level can drag the contract to ₹145 — the 61.8 per cent Fibonacci retracement level.

On the global front, the three-month rolling forward contract of zinc on the LME is largely consolidating between $1,940 and $2,000. The contract was unable to move beyond the resistance at $2,000. As long as it remains below this level, the contract can be subject to downward pressure. Such a decline has the potential to drag the contract on the MCX as well.

Trading strategy

While the contract on the MCX and LME is in a sideways trend, the price action shows a different picture. The MCX contract is showing a bullish bias whereas the contract on the LME is showing otherwise. So, traders can stay on the sidelines until the MCX-Zinc breaches ₹160. Above ₹160, go long with stop-loss at ₹150.

Note: The recommendations are based on technical analysis. There is a risk of loss in trading.

Published on May 28, 2020

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